Apple set to challenge EU’s US$14 bln tax demand

Apple will launch a legal challenge this week to the European Union’s record US$14 billion tax demand, arguing that EU regulators ignored tax experts and corporate law and deliberately picked a method to maximize the penalty.

Apple’s combative stand underlines its anger with the European Commission, which said on Aug. 30 the company’s Irish tax deal was illegal state aid and ordered it to repay up to 13 billion euros (US$13.8 billion) to Ireland, where Apple has its European headquarters, Reuters reports.

Apple intends to lodge an appeal against the Commission’s ruling at Europe’s second highest court this week, its general counsel Bruce Sewell and chief financial officer Luca Maestri told Reuters in an interview at the company’s global headquarters in Cupertino, California.

The iPhone and iPad maker was singled out because of its success, Sewell said.

“Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines. It allows the commissioner to become Dane of the year for 2016,” he said, referring to the title accorded by Danish newspaper Berlingske last month.

Apple will tell judges the commission was not diligent in its investigation because it disregarded tax experts brought in by Irish authorities.

“Now the Irish have put in an expert opinion from an incredibly well-respected Irish tax lawyer. The commission not only didn’t attack that – didn’t argue with it, as far as we know – they probably didn’t even read it. Because there is no reference [in the EU decision] whatsoever,” Sewell said.

The European Commission accused Ireland in 2014 of dodging international tax rules by letting Apple shelter profits worth tens of billions of dollars from tax collectors in return for maintaining jobs. Apple and Ireland denied the accusation.

The commission’s tax demand angered the US government, which accused the EU of grabbing revenue intended for US coffers.

Apple also intends to challenge the EU enforcer’s basis for its case, arguing that the “crazy notion of non-residency” was chosen on purpose to produce a punitive amount.

Other arguments the EU could have used could have been based on transfer pricing – the pricing strategy between a company’s units – or the “arm’s length” principle adopted by companies to sell and buy from affiliates as if they were unrelated firms.

“Both of those other two theories at least could be fleshed out, but they produced much lower numbers,” Sewell said.

He added it was not possible for Apple to comply with the EU decision because it would mean Ireland violating its own past tax laws setting different rules for residents and non-resident companies.

The Irish government is also appealing against the commission’s tax demand. It believes it must protect a tax regime that has attracted many multinational employers to the country.

Apple plans to tell the court that the commission erred when it ruled that the head office of Irish-registered units Apple Sales International (ASI) and Apple Operations Europe existed only on paper, with no justification for the billions of euros it posted in untaxed profits.

Sewell said the fact that an entity was a holding company with no employees on its books did not mean it was inactive and it could be actively managed by employees of its parent company.

“So when Tim Cook, who is the CEO of our company, makes decisions that impact ASI, the commission says we don’t care because he is not an ASI employee, he is an Apple Inc. employee. But to say that somehow Tim Cook can’t make decisions for ASI is a complete mis-statement of corporate law, it’s a misunderstanding of how corporations operate,” he said.

Maestri said the Commission over-estimated the importance of the company’s European headquarters in Cork in the south of Ireland.

“[Vestager] is arguing that the base on which we should pay taxes in Ireland is essentially all the profits we generate outside the United States … in a place that doesn’t do any engineering, doesn’t generate any intellectual property for us,” he said, adding it was an “absurd theory”.

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